COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 1386

One Simple Test of Samuelson's Dictum for the Stock Market

Jeeman Jung
Sangmyung University

Robert J. Shiller
Yale University

October 2002

 Samuelson (1998) offered the dictum that the stock market is "micro efficient" but "macro inefficient." That is, the efficient markets hypothesis works much better for individual stocks than it does for the aggregate stock market. In this paper, we present one simple test, based both on regressions and on a simple scatter diagram that vividly illustrates that there is some truth to Samuelson’s dictum. The data comprise all U.S. firms on the CRSP tape that have survived since 1926.

Keywords: Market efficiency, Random walk, Dividend yield, Dividend price ratio, Present value, Excess volatility, Gordon model

JEL Classification: G14